Category: Current Affairs
Google signs contract for small modular nuclear reactors
Since pioneering the first corporate purchase agreements for renewable electricity over a decade ago, Google has played a pivotal role in accelerating clean energy solutions, including the next generation of advanced clean technologies. Today, we’re building on these efforts by signing the world’s first corporate agreement to purchase nuclear energy from multiple small modular reactors (SMRs) to be developed by Kairos Power. The initial phase of work is intended to bring Kairos Power’s first SMR online quickly and safely by 2030, followed by additional reactor deployments through 2035. Overall, this deal will enable up to 500 MW of new 24/7 carbon-free power to U.S. electricity grids and help more communities benefit from clean and affordable nuclear power.
Here is more from Google.
Acemoglu, Johnson and Robinson Win Nobel Prize for Institutions and Prosperity
The Nobel prize goes to Daron Acemoglu, Simon Johnson and James Robinson for their work on institutions, prosperity, and economic growth. Here is a key piece summarizing their work: Institutions as a Fundamental Cause of Long-Run Growth.
This paper develops the empirical and theoretical case that differences in economic institutions are the fundamental cause of differences in economic development. We first document the empirical importance of institutions by focusing on two “quasi-natural experiments” in history, the division of Korea into two parts with very different economic institutions and the colonization of much of the world by European powers starting in the fifteenth century. We then develop the basic outline of a framework for thinking about why economic institutions differ across countries. Economic institutions determine the incentives of and the constraints on economic actors, and shape economic outcomes. As such, they are social decisions, chosen for their consequences. Because different groups and individuals typically benefit from different economic institutions, there is generally a conflict over these social choices, ultimately resolved in favor of groups with greater political power. The distribution of political power in society is in turn determined by political institutions and the distribution of resources. Political institutions allocate de jure political power, while groups with greater economic might typically possess greater de facto political power…Economic institutions encouraging economic growth emerge when political institutions allocate power to groups with interests in broad-based property rights enforcement, when they create effective constraints on power-holders, and when there are relatively few rents to be captured by power-holders.
See this great MRU video on Institutions for a quick overview! Here from an interview with Acemoglu, is a slightly more pointed perspective. Politics keeps people poor:
Why is it that certain different types of institutions stick?….it wouldn’t make sense, in terms of economic growth, to have a set of institutions that ban private property or create private property that is highly insecure, where I can encroach on your rights. But politically, it might make a lot of sense.
If I have the political power, and I’m afraid of you becoming rich and challenging me politically, then it makes a lot of sense for me to create a set of institutions that don’t give you secure property rights. If I’m afraid of you starting new businesses and attracting my workers away from me, it makes a lot of sense for me to regulate you in such a way that it totally kills your ability to grow or undertake innovations.
So, if I am really afraid of losing political power to you, that really brings me to the politics of institutions, where the logic is not so much the economic consequences, but the political consequences. This means that, say, when considering some reform, what most politicians and powerful elites in society really care about is not whether this reform will make the population at large better off, but whether it will make it easier or harder for them to cling to power.
Those are the sort of issues that become first-order if you want to understand how these things work.
One interesting aspect of this year’s Nobel is that almost all of AJRs Nobel work is accessible to the public because it has come primarily through popular books rather than papers. The Economic Origins of Dictatorship and Democracy, Why Nations Fail, and the The Narrow Corridor all by Acemoglu and Robinson and Power and Progress by Acemoglu and Johnson are all very readable books aimed squarely at the general public. The books are in many ways deeper and more subtle than the academic work which might have triggered the broader ideas (such as the famous Settler Mortality paper). Many of the key papers such as Reversal of Fortune are also very readable.
This is not to say that the authors have not also made many technical contributions to economics, most especially Acemoglu. I think of Daron Acemoglu (GS) as the Wilt Chamberlin of economics, an absolute monster of productivity who racks up the papers and the citations at nearly unprecedented rates. According to Google Scholar he has 247,440 citations and an H-index of 175, which means 175 papers each with more than 175 citations. Pause on that for a moment. Daron got his PhD in 1992 so that’s over 5 papers per year which would be tremendous by itself–but we are talking 5 path-breaking, highly-cited papers per year plus many others! (Of course, most written with excellent co-authors). In addition, he’s the author of a massive textbook on economic growth. More than any other economist Daron has pushed the cutting-edge of technical economics and has also written books of deep scholarship still accessible to the public. In his overview of Daron’s work for the John Bates Clark medal Robert Shimer wrote “he can write faster than I can digest his research.” I believe that is true for the profession as a whole. We are all catching-up to Daron Acemoglu.
Indeed, in reading a book like Why Nations Fail and papers like The Network Origins of Aggregate Fluctuations (one of my favorite Acemoglu papers) and The Uniqueness of Solutions for Nonlinear and Mixed Complementarity Problems it’s difficult to believe they are co-authored by the same person. Acemoglu is as comfortable talking history, politics, and political economy as he is talking about the economics of recessions and abstruse mathematics.
Here are Previous MR posts on Daron Acemoglu including this post on democracy where I find the effect of democracy on growth to be ho-hum. Here is Maxwell Tabarrok on Acemoglu on AI. Here is Conversations with Tyler with Acemoglu and a separate conversation with Simon Johnson.
As noted, one of my favorite Acemoglu papers (with Carvalho, Ozdaglar, and Tahbaz-Salehi) is The Network Origins of Aggregate Fluctuations. Conventional economics models the aggregate economy as if it were a single large firm. In fact, the economy is a network. An auto plants needs steel and oil to operate so fluctuations in the steel and oil industry will influence production in the auto industry. For a long time, the network nature of production has been ignored. In part because there are some situations in which a network can be modeled as if it were a single firm and in part because it’s just much easier to do the math that way. Acemoglu et al. show that aggregate fluctuations can be generated by sector fluctuations and that organization of the network cannot be ignored. This is a modern approach to real business cycles. See also my post on Gabaix and granular fluctuations).
In recent work, Acemoglu and Restrepo have created a new way of modeling production functions which divides work into tasks, some of which are better performed by capital and others by labor. Technological change is not simply about increasing the productivity of labor or capital (modeled in standard economics as making one laborer today worth two of yesterday’s) but about changing which tasks can best be done by capital and which by labor. As a task moves from labor to capital the demand for labor falls but productivity increases which generates demand for other kinds of labor. In addition, as capital replaces labor in some tasks entirely new tasks may be created for which labor has a comparative advantage. A number of interesting points come out of this including the idea that what we have to fear most is not super-robots but mediocre-robots. A super-robot replaces labor but has an immense productivity advantage which generates wealth and demand for labor elsewhere. A mediocre-robot replaces the same labor but doesn’t have a huge productivity advantage. In an empirical breakdown, Acemoglu and Restrepo suggest that what has happened in the 1990s and especially since 2000 is mediocre-robots. As a result, there has been a decline in labor on net. Thus, Acemoglu is more negative than many economists on automation, at least as it has occurred recently. Acemoglu and Restrepo is some of the best recent work going beyond the old tired debates to reformulate how we think of production and to use that reformulation to tie those reformulations to what is actually happening in the economy.
Solow thought of technical change as exogenous which is still the first-pass approach to thinking about technical change. Acemoglu in contrast focuses on price and market size. In particular, the larger the market the greater the incentive to invest in R&D to serve that market (see also my TED talk). Thus, technical change will tend to be cumulative. A sector with a productivity improvement will grow which can make that sector even more remunerative for further technical advances (depending on elasticities). This matters a lot for environmental change because it suggests that a relative small intervention today–including subsidizing research on clean technologies–can have a huge payoff in the future because by directing technical change in the right direction you make it easier to switch later on. (from this interview)
But let’s think of the logic of directed technical change with cumulative research. The less we do on green technology today, the less knowledge is accumulated in the green sector, so the bigger is the gap between fossil-fuel-based technology and energy, and the cleaner energy, so the harder it will be in the future to close that gap. With more proactive, decisive action today, we already start closing the gap, and we’re making it easier to deal with the problem in the future.
Simon Johnson has also written important books on banking and finance including and that was before the big run up in American debt! James Robinson has written widely on African development and colonialism and African development more generally.
Overall, I’d say that this is an award for political science and for popular economics in the very best sense of economics that matters. Go buy their books and read them!
“California officials cite Elon Musk’s politics in rejecting SpaceX launches”
Elon Musk’s tweets about the presidential election and spreading falsehoods about Hurricane Helene are endangering his ability to launch rockets off California’s central coast.
The California Coastal Commission on Thursday rejected the Air Force’s plan to give SpaceX permission to launch up to 50 rockets a year from Vandenberg Air Force Base in Santa Barbara County.
“Elon Musk is hopping about the country, spewing and tweeting political falsehoods and attacking FEMA while claiming his desire to help the hurricane victims with free Starlink access to the internet,” Commissioner Gretchen Newsom said at the meeting in San Diego.
The agency’s commissioners, appointed by the governor and legislative leaders, voted 6-4 to reject the Air Force’s plan over concerns that all SpaceX launches would be considered military activity, shielding the company from having to acquire its own permits, even if military payloads aren’t being carried.
Here is more from Politico, which is the source of that headline. Wildlife issues are significant as well.
The Missing Dockworkers
One of the most amazing facts to come out of the dockworker strike (now resolved, it seems):
WSJ: Start with the astounding fact that there were 50,000 or so ILA strikers but only 25,000 or so port jobs. That’s right, only about half of the union’s members are obliged to show up to work each day. The rest sit at home collecting “container royalties” negotiated in previous ILA contracts intended to protect against job losses that result from innovation.
Hat tip: Scott Lincicome.
That was then, this is now…
Oil companies are conveying an unlikely message to the GOP and its presidential candidate: Spare President Biden’s signature climate law. At least the parts that benefit the oil industry.
In discussions with former President Trump’s campaign and his allies in Congress, oil giants including Exxon Mobil, Phillips 66, and Occidental Petroleum have extolled the benefits of the Inflation Reduction Act. Many in the fossil-fuel industry opposed the law when it passed in 2022 but have come to love provisions that earmark billions of dollars for low-carbon energy projects they are betting on.
Some executives in the largely pro-Trump oil industry are worried the former president, if re-elected, would side with conservative lawmakers who want to gut the IRA. They fear losing tax credits vital for their investments in renewable fuel, carbon capture and hydrogen, costly technologies requiring U.S. support to survive their early years.
Here is more from the WSJ.
From the Department of Energy
PIER Plans will be evaluated as part of the merit review process and will be used to inform funding decisions. The review criterion, Quality and Efficacy of the Plan for Promoting Inclusive and Equitable Research, will be included as one of the merit review criteria that peer reviewers will use to evaluate applications.
The Office of Science’s standard merit review criteria are set forth by 10 CFR Part 605.10 and may include additional criteria relevant to the scope and objectives of the solicitation.
Here is the notice, with further detail, it seems that will apply to all of their grant funding?
Via a loyal MR reader.
The Economic Way of Thinking in a Pandemic
During the pandemic, economists often found themselves at odds with politicians, physicians, epidemiologists and others. Some politicians, for example, were worried that the pharma companies might engage in profiteering while economists worried that the pharma companies were not nearly profitable enough. Physicians focused on maximizing the health of patients while economists focused on maximizing the health of society–during the pandemic these were not the same and this led to disputes over testing, first doses first and human challenge trials. During the pandemic economists were often accused of not staying in their lane. But what is the economist’s lane?
In this talk, I discuss the economic way of thinking and how it conflicted with other ways of thinking. My talk pairs well with my recent paper also titled The Economic Way of Thinking in a Pandemic.
South Africa update
The African National Congress no longer regards privatisation as a “swear word” and has accepted that “bringing private sector money on board is not selling your soul”, said South Africa’s deputy president Paul Mashatile.
In an interview with the Financial Times at the end of a week-long investor roadshow to Britain and Ireland, Mashatile said South Africa’s new government, in which the ANC is sharing power with the market-leaning Democratic Alliance, had understood the need for more private investment in sectors such as energy, water and infrastructure. “We don’t have the money to do it, so we need the private sector,” said Mashatile, considered a potential successor to President Cyril Ramaphosa.
Investor sentiment towards South Africa has improved dramatically since the formation of the GNU, after 15 years in which the economy has barely grown against the backdrop of corruption scandals and government mismanagement of basic services.
The South African rand has risen more than 12 per cent against the US dollar this year, behind only the Argentine peso and Turkish lira. The Johannesburg bourse’s benchmark index is up 21 per cent in US dollar terms including dividends.
Here is more from the FT.
My excellent Conversation with Tom Tugendhat
Here is the audio, video, and transcript. Here is the episode summary:
Tom Tugendhat has served as a Member of Parliament since 2015, holding roles such as Security Minister and chair of the Foreign Affairs Select Committee. Before entering Parliament, Tom served in in Iraq and Afghanistan. He also worked for the Foreign Office, helped establish the National Security Council of Afghanistan, and served as military assistant and principal adviser to the Chief of the Defense Staff.
Tyler and Tom examine the evolving landscape of governance and leadership in the UK today, touching on the challenges of managing London under the UK’s centralized system, why England remains economically unbalanced, his most controversial view on London’s architecture, whether YIMBYism in England can succeed, the unique politics and history of Kent, whether the system of private schools needs reform, his pick for the greatest unselected prime minister, whether Brexit revealed a defect in the parliamentary system, whether the House of Lords should be abolished, why the British monarchy continues to captivate the world, devolution in Scotland and Northern Ireland, how learning Arabic in Yemen affected his life trajectory, his read on the Middle East and Russia, the Tom Tugendhat production function, his pitch for why a talented young person should work in the British Civil Service, and more.
And here is an excerpt:
COWEN: Okay. First question, what is your favorite walk around London, and what does it show about the city that outsiders might not understand?
TUGENDHAT: Oh, my favorite walk is down the river. A lot of people walk down the river. One of the best things about walking down the river in London is, first of all, it shows two things. One, that London is actually an incredibly private place. You can be completely on your own in the center of one of the biggest cities in the world within seconds, just by walking down the river. Very often, even in the middle of the day, there’s nobody there. You walk past things that are just extraordinary. You walk past a customs house. It’s not used anymore, but it was the customs house for 300, 400, 500 years. You walk past, obviously, the Tower of London. You walk past Tower Bridge. You walk past many things like that.
Actually, you’re walking past a lot of modern London as well, and you see the reality of London, which is — the truth is, London isn’t a single city. It’s many, many different villages, all cobbled together in various different ways. I think outsiders miss the fact that there’s a real intimacy to London that you miss if all you’re doing is you’re going on the Tube, or if you’re going on the bus. If you walk down that river, you see a very, very different kind of London. You see real communities and real smaller communities.
And:
COWEN: Can the British system of government in its current parliamentary form — how well can that work without broadly liberal individualistic foundations in public opinion?
TUGENDHAT: I think it works extremely well at ensuring that truly liberal foundations are maintained. I mean that not in the American sense; I mean in a genuine, the old liberal tradition that emerges from the UK in the 1700s, 1800s, where freedom of thought, freedom of assembly, the right to own property, and all those principles that then became embedded in various different constitutions around the world, including your own. I think it does very well at doing that because it forces you, our system forces you, into partnership. There are 650 people who you have to work with in some way in Parliament over the next four or five years.
And there’s four of us currently going for leadership at the Conservative Party. There’s one reason why, despite the fact that we’re competing almost in a US primary system, the way in which we are dealing with each other is very different, is because we’re all going to have to work together for the next four years. Whoever wins is going to have to work with the other three, and the idea that you can simply ignore each other isn’t true. There’s only 121 of us Conservative MPs in Parliament, and what this system forces on us is the need to deal with each other in a way that you have to deal with somebody if you’re going to deal with them tomorrow. I think that’s one of the reasons why the British political system has endured because it forces you to remember that there’s a long-term interest, not an immediate one, not just a short-term one.
Recommended, highly intelligent throughout, including on China, Russia, and Yemen.
How economists think about victims of natural disasters
That is the topic of my latest Bloomberg column, here is one excerpt:
First, whenever possible it is better to use private insurance, such as homeowner’s insurance and flood insurance, to protect against loss. One of the functions of insurance is to make losers at least partially whole after the fact, but another is to make risky decisions too expensive to contemplate in the first place.
This second function of insurance is especially important for Florida. The state is vulnerable to storms, so market prices for insurance should be allowed to adjust to higher levels, most of all for vulnerable properties. High prices in an area are a sign that building and renovation should not take place there. With fewer people living in vulnerable areas, the cost of storms will fall accordingly.
That sounds harsh, but “incentives matter” is the first and primary principle of economics, and sometimes incentives should be allowed to operate. Unfortunately, Florida has a state-run insurer of last resort which continues to bail out homeowners.
Political debates tend to frame this issue as whether to help poor, struggling homeowners. And indeed they may well suffer some terrifying losses because of storms. But whatever you think of such bailouts after the fact, with better incentives ahead of time, that issue will come up less often.
Economists are better at ex ante institutional design than at adjudicating all claims on the public purse ex post.
Advice that is not always heeded.
The Marginal Revolution Podcast: The Nobel Prize
We interrupt our regularly scheduled series of podcasts on the 1970s–first one here on inflation and monetary policy–to bring you a new podcast in honor of next week’s Nobel Prize in economics. Who will win? Who should win? Who should have won but didn’t? Who won but shouldn’t have?
Here’s one bit:
COWEN: I would give it to Robert Barro.
TABARROK: Okay. Tell me why you would give it to Robert Barro.
COWEN: “Are government bonds net wealth?” as a fundamental way of thinking about fiscal policy remains central. Also, he did early work on political business cycle theory. The status of cross-country growth regressions has fallen greatly. People once thought he might get it for that. That may now even be hurting his chances, but I think overall, what he’s created and done is enough for a Nobel Prize. He’s had five or six key articles in major macro fields.
TABARROK: Yes, I agree with you. I think you’re right about the cross-country regressions have fallen in favor over time, but still hugely important and really pushed the profession in that direction for a long time. Just because it’s not fashionable today doesn’t mean that it wasn’t a major contribution.
COWEN: It does mean fewer people will nominate him for fear of looking a bit low status, like, “Oh, you still think cross-country growth progressions are the thing.” I think it matters how many people nominate you in the early rounds.
TABARROK: Yes. I think it’s Barro’s birthday this week. He’s 80, I think.
I’d be pleased if Barro won, not for the least reason that he will be here at GMU next week which would be extra exciting if we can also celebrate a Nobel.
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Northern Ireland fact of the day
The NHS in Northern Ireland is the worst in the UK. During the quarter April/June 2021, over 349,000 people were waiting for a first appointment, 53 percent for over a year, an increase of 39,000 for the same period in 2020. Adjusted for population size, waiting lists in Northern Ireland are 100 times greater than those in England, a country 50 times its size.
That is from the truly excellent Perils and Prospects of a United Ireland, by Padraig O’Malley. Imagine a detailed, thoughtful 500 pp. book on political issues you probably don’t care all that much about — is there any better way to study politics and political reasoning? Every page of this book offers substance.
Elsewhere, of course, we are told that reluctance to give up their health care system is a major reason why Irish reunification is not more popular in the North, and that holds for Catholics too.
This one will make the best non-fiction of the year list.
The polity that is Russia
Russia’s parliament, the State Duma, is working on a law that aims to ban so-called child-free ideology which it sees as harmful to traditional values.
Vyacheslav Volodin, the chairman of the State Duma, the lower house of parliament, announced recently that fines for “propaganda of childlessness” will amount to up to 400,000 rubles ($4,300; €3,879) for individuals and up to 5 million rubles for companies.
This legislation is based on a 2022 law banning “LGBTQ+ propaganda.”
…The first draft of this new law to ban “child-fee ideology” was discussed in the State Duma in September 2022. The following year, special “family lessons” were introduced in schools. According to officials, their aim is to “form a healthy society” and increse the “popularization of large families.” Several parliamentarians have even raised the idea of imposing taxes on childless families.
At the same time, access to emergency contraception and abortion has been limited in Russia. New Health Ministry guidelines instruct medics on how best to dissuade woman from having an abortion, while many private clinics have lost their license to carry out abortions. Ten regions in Russia have imposed fines for “inducing” women to have abortions.
Here is the full story. Via Rasheed Griffith.
Scott Alexander on Milei
Monthly inflation went from 25% to about 4%. This is obviously great, but there are two small notes of concern.
First, the 25% number was just one really bad month. Inflation had been at a baseline of about 4% for most of the last five years. The immediately-pre-Milei government really cranked up the money printer in its last few months, increasing the numbers to 10% for a few months, and finally 25% for one really bad final month. Milei was able to get it down to its usual baseline of 4%, but I think he was hoping to get it lower. So far it’s been stubborn and stayed at the 4% level through the spring and summer.
Second, even 4% monthly inflation is awful. 4% monthly = 60% yearly. Remember, the United States briefly had 9% yearly inflation after COVID and people were livid. Argentina’s “good” “improved” inflation is still 7x that.
The case why culture is not stuck
From the excellent Katherine Dee, here is just one excerpt:
TikTok sketch comedy is in the same lineage of theater. It invites a suspension of disbelief from the audience, creators often play multiple characters, rapidly switching between roles with nothing more than a change in voice, facial expression, or camera angle. And importantly, it’s funny. When the whole feed is taken together, it’s almost digital vaudeville: a song, a short sketch, a physical feat, slapstick, animal acts and satire, one after another, in a personalized variety show on your phone.
And:
It’s a spectrum. At one end, we have Internet Personalities, with their cults of devotion. In the middle, we find fan culture, where some fans become prominent figures within their fandoms, stars in their own right. These Big Name Fans occasionally break out to create their own media kingdoms, as was the case with E.L. James, who authored Fifty Shades of Grey, itself originally Twilight fanfiction, and Cassandra Clare, who began in the Harry Potter fan community, before going on to write several popular fantasy series. At the other end of the spectrum are anonymous creators, whose approach to authorship is almost medieval: their projects are not about them as individuals, but the meme, the project, the aesthetic, the vision. They are less like the expressive individualists of Modern art, than the cathedral builders of the Middle Ages.
Much has been said about memes as art and the collective labor and imagination that goes into their creation, but it extends further than that. It’s not just memes. Creating mood boards on Pinterest or curating aesthetics on TikTok are evolving art forms, too. Constructing an atmosphere, or “vibe,” through images and sounds, is itself a form of storytelling, one that’s been woefully misunderstood and even undermined as shallow. Many of these aesthetics have staying power, like “coquette” and “cottagecore.” They’re not passing fads or stand-ins for personalities or subcultures. They are more than ever-evolving vectors for consumerism. They’re a type of immersive art that we don’t yet have the language to fully describe.
But that is the case with so much of what’s new. We won’t understand it until it’s in the rearview mirror.
Interesting throughout. Of course AI-aided creations will be the next step in this process. Maybe you don’t like a lot of these new forms, perhaps because they do not have the nobility and grandeur of say Bach. One simple point is that it is not optimal for every period in culture to focus on exactly what you want from it. This point is rarely recognized. Diversity across time is valuable as well!